How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding New Relic Inc (NYSE:NEWR).
Is New Relic Inc (NYSE:NEWR) ready to rally soon? The smart money is taking a bullish view. The number of bullish hedge fund positions inched up by 2 recently. Our calculations also showed that NEWR isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's go over the recent hedge fund action surrounding New Relic Inc (NYSE:NEWR).
How have hedgies been trading New Relic Inc (NYSE:NEWR)?
Heading into the third quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in NEWR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in New Relic Inc (NYSE:NEWR). Citadel Investment Group has a $77.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $58.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish include Israel Englander's Millennium Management, Renaissance Technologies and Anand Parekh's Alyeska Investment Group.
Consequently, specific money managers were leading the bulls' herd. Alyeska Investment Group, managed by Anand Parekh, assembled the biggest position in New Relic Inc (NYSE:NEWR). Alyeska Investment Group had $19.1 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also initiated a $17.3 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Panayotis Takis Sparaggis's Alkeon Capital Management, and Ira Unschuld's Brant Point Investment Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as New Relic Inc (NYSE:NEWR) but similarly valued. These stocks are Acuity Brands, Inc. (NYSE:AYI), Grupo Televisa SAB (NYSE:TV), Qurate Retail, Inc. (NASDAQ:QRTEA), and Capri Holdings Limited (NYSE:CPRI). This group of stocks' market values are similar to NEWR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AYI,23,928702,-6 TV,18,719110,2 QRTEA,33,639765,0 CPRI,35,808989,-2 Average,27.25,774142,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $774 million. That figure was $278 million in NEWR's case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 18 bullish hedge fund positions. New Relic Inc (NYSE:NEWR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NEWR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NEWR were disappointed as the stock returned -29% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (view the video below) among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.